Global Witness calls for action to end hidden company ownership in light of money laundering accusations

Global Witness is today revealing evidence that numerous UK companies appear to have helped facilitate a major money laundering scandal centred on a bank in Central Asia. Grave Secrecy, launched today, shows how urgent action is needed to address the current ease with which the UK and other major economies are used to launder the proceeds of corruption, tax evasion and other crimes.

Grave Secrecy exposes how billions of dollars of suspicious transactions at AsiaUniversalBank, Kyrgyzstan’s largest bank until April 2010, involved UK, New Zealand and Bulgarian-registered companies.

“It is so easy to set up a secretive ‘shell’ company in the UK and elsewhere that criminals, terrorists and corrupt politicians can easily move money around the world with impunity,” said Tom Mayne, a Global Witness campaigner. “Not only that but you can do this perfectly legally. This denies citizens of poor countries the chance to lift themselves out of poverty and leaves them dependent on aid,” continued Mayne.

The report reveals:

That three UK companies had US$1.2 billion running through their accounts despite not being involved in any real business that Global Witness could ascertain.

That the suspicious transactions went through many banks around the world, with the largest amounts passing through Citibank in New York, the UK’s Standard Chartered and Austria’s Raiffeisen Zentralbank. These banks continued their relationship, though one bank, UBS, was sufficiently concerned about their relationship with the Kyrgyz bank that it broke off relations.

That in one case, the identity of a dead man from Russia was used as the front for a UK company. While this person had died three years before the company was set up, he was listed as the company’s owner and he even ‘attended’ a company meeting in London.

That the Kyrgyz authorities believe that some of the companies have potential direct ties to Maxim Bakiyev, the son of the former president. Maxim Bakiyev has been indicted on money laundering charges in Kyrgyzstan, but is currently in the UK, having claimed political asylum.

That the Kyrgyz bank’s international reputation was helped by the presence of three former US Senators, including former presidential candidate Bob Dole, on its board.

At present, it is virtually impossible to find out the identities of the actual, ‘beneficial’ owners of companies. This is because there are several perfectly legal ways that corrupt politicians, tax evaders and terrorists can hide their identities. One way is to set up a company in a major financial centre such as the UK, then have its shareholders be other companies registered in places that keep ownership secret. Another way is to pay people to have their name on your company documents, instead of your own.

Global Witness believes that information on the real owners of companies must be made public. The EU has the opportunity to put a stop to these abuses by closing these loopholes in its upcoming anti-money laundering directive. “If the EU doesn’t act, European countries will continue to be complicit in the theft of billions of dollars belonging both to citizens of developing countries and taxpayers of developed countries,” concluded Mayne.

1. The global anti-money laundering standards require banks and other institutions to identify the real, beneficial owners of accounts, since without this information they cannot meaningfully assess the risk of the money deposited being the proceeds of crime. However, there are two problems with this:

Lots of countries do not comply with this standard. The Financial Action Task Force (FATF) carries out ‘mutual evaluations’ of countries to assess their degree of compliance with the global anti-money laundering standard. Of the 34 countries that are FATF member states an astonishing 30 were deemed to be ‘not compliant’ or ‘partially compliant’ with this particular recommendation, as of their last FATF evaluation. Countries that are ‘not compliant’ include the US, Canada, Germany and Switzerland.

The anti-money laundering requirements on beneficial ownership do not go far enough. FATF’s recommendation on beneficial ownership requires that countries, at a minimum, make beneficial ownership information available to competent authorities such as law enforcement. It is possible to do this with no registry whatsoever – you just leave it up to law enforcement to do what they can with existing sources of information. But while this may contribute to law enforcement efforts once money has already been laundered or other crimes already committed, it does nothing to prevent the misuse of front companies in the first place.

2. The World Bank reviewed 150 big cases of corruption between 1980 and 2010 and identified the companies that were used to hide peoples’ identities. Companies registered in the US topped the list; those registered in the UK and its Crown Dependencies and Overseas Territories came second.